Past Articles for December, 2006

Skipton Building Society claims that for people making the purchases on plastic, the fact that interest on the credit card debt can cost more than the original purchase is a “ridiculous situation”.

John Goodfellow, chief executive of the building society, said: “Paying for the festive season on the credit card can end up costing more than was spent, which is a ridiculous situation to be in.”

He urged people to save for Christmas through a monthly debt management plan throughout the year.

Through putting money into specialist schemes offered by this and other financial institutions, savers can put away enough to pay for next Christmas.

In order to encourage debt management for next year, Skipton is only allowing access to funds from the end of November, helping people avoid the urge to break their vows to save.
If people act now and take advice, they could even clear debt and start saving for Christmas 2007 soon.

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According to Footfall, which counts people going into shops, there was an 8.9 per cent decline in high street shoppers when compared to the same period last year, with Thomas Cook reporting a 13 per cent decline in winter holiday bookings.

“The reason it is so weak is because of lack of consumer confidence and the economic downturn,” a spokesman for the travel agency told the Daily Telegraph. “People see their winter holiday as a luxury and if they are feeling the pinch they are less likely to book it.”

Economists are also quoted, saying that high utility bills had affected the amount of free cash people had to spend.

Natasha Burton, retail analyst at Footfall, which did not count online spending, added that she believed that debit and credit card debt levels also had an effect on spending patterns her agency studied.

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According to the firm, over a fifth of lenders do not charge early redemption fees, meaning that consumers clear debt early will not pay a penalty for doing while saving on interest repayments.

Sean Gardner, chief executive of MoneyExpert.com, said: “Paying off a loan early makes sense as it cuts down your interest bill and helps you become debt free
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“But it can come at a price and while early redemption penalties can be a price worth paying it is better to avoid them entirely by taking out a loan which doesn’t charge fees. If you believe you will pay the loan off before the end of the term then research the market before you buy.”

He added that consumers taking out a loan should look at more than just the early redemption penalties, but states that they can be useful. Early repayment can typically help with debt management.

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That is according to moneysupermarket.com, which claims that through management and transfers of credit card debt, loans, insurance, utility bills and other products, consumers can put on pounds in the new year.

Stuart Glendinning, managing director of the website, said: “People should always review their finances on a regular basis. However, the new year may be just the trigger many need actually to do it.

“And for those suffering a financial hangover from the festive period, recovery could be all the quicker if they follow some simple switching tips.”

He added that savings can be “significant”, with a typical family enjoying savings of £5,168.93 through good financial and debt management.

While many advisers recommend that people rein in their spending as part of their debt management, Mr Glendinning said that for those where this is difficult, the savings he predicts can be made without major changes to a lifestyle.

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According to Lloyds TSB Corporate Markets, 80 per cent of British consumers expect interest rates to be higher this time next year than they are currently, meaning that people should start saving now.

Consumers also felt that prices had risen significantly since last year, adding to the debt burden that ordinary people carry.

Trevor Williams, chief economist at Lloyds TSB Corporate Markets, said: “Rate rises in recent months have obviously dampened consumer optimism and despite the bank rate holding at five per cent this month, consumers are expecting the gloom to continue well into 2007.”

However, he said that the belief in a further increase in the interest rates was not shared with many economists.

Despite this, it always pays to take advice on becoming debt free so that you can be prepared for whatever the economic situation is in 2007.

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Brian Capon, spokesman for the BBA, said that people tend to take out loans during the Christmas season, or add to their credit card debt.

“People do tend to perhaps borrow more over the Christmas period and use credit cards. Perhaps they do carry some of that borrowing over rather than repay them in full,” Mr Capon said.

He added that this could lead to a debt problem, but this might not happen, for instance, if people take debt advice now.

Mr Capon urged responsible borrowing and for people not to take on more debt than they can afford to repay. He added that people should go to a responsible lender rather than one that with APRs as high as 300 per cent.

“I think in that case there will inevitably be an increase in borrowing over Christmas on your card, but again I think the best thing is to be responsible with your borrowing as banks are responsible with their lending,” Mr Capon concluded.

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The Office of Fair Trading (OFT) said that a business called Paid Surveys is sending out bogus cheques for £350 for people to engage in consumer research - with the first assignment being to ‘test’ a money transfer agency.

With the cheque apparently backed by a reputable bank, many people have fallen for the scheme where they transfer £1,500 to Canada to test the transfer.

Unfortunately, the original cheque is not real and the £1,500 is never returned

Christine Wade, OFT assistant chief executive of consumer advice and trading standards, said: “This is a nasty scam which exploits the promise of paid work to defraud victims.

“Scams are becoming increasingly more sophisticated and everyone needs to be on their guard.”

She urged consumers, particularly those struggling to clear debt, to never send money to strangers nor give in to pressure to become a ‘mystery shopper’ or be taken in by the ‘authority’ of a cheque.

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Alliance & Leicester claims that over 14 million adults - over half of all workers - would struggle with debt management without a job, as a fifth say they have no insurance or savings to protect them.

Lindsey Henson, manager for protection at Alliance & Leicester, said: “It’s easy when you’re busy with your working life to take the security of a monthly income for granted.

“However, if you become ill, suffer an accident or are made redundant then you may be unable to earn an income. It is vitally important to consider what measures you can put in place to ensure you can continue to meet your financial commitments and maintain a reasonable standard of living.”

She urged all workers to seek financial and debt advice now to plan for the future, saying it should be a “new year resolution” for all workers.

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According to a spokesman for the association, late shopping can mean that people spend more than they plan to, fuelling debt problems.

Brian Capon said: “You tend to find that men, in particular, tend to go out last-minute to do Christmas shopping for, presumably, their other halves. Because they leave it till last minute they tend to go out and get something that’s more expensive and less suitable for the person they are buying for.

“The message there is that perhaps people would spend less money if they shopped sooner rather than later, on Christmas Eve.”

His comments come in response to findings that many people are turning towards high-interest loans at this time of year to fund their Christmas.

With firms such as Provident Financial charging up to 300 per cent APR on its loans, early shopping and good debt management can mean that people can enjoy Christmas without a new year of repayments.

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Saying that for many this is season is “Stressmas”, Dr John Sentamu quoted figures from Credit Action which indicate that UK spending will reach £51.6 billion over Christmas, with debit and credit card debt as much as £31.8 billion.

“Little wonder that, according to the credit reference agency Experian, three in four Britons admit to worrying about financial pressures during the festive season,” the archbishop wrote in the Daily Telegraph.

“The festive season is turning into “Stressmas”, because 20 per cent of people are still paying off their Christmas spend up to six months later.”

Dr Sentamu adds that the average adult will spend £863 on Christmas, including £378 on presents, £163 on food and drink, £53 on wrapping paper, cards and postage, £64 on decorations, £121 socialising and £84 on travel.

He urged Britons to curb their spending and become less materialistic, which should help stop people getting into debt.

However, for those struggling already, advice on becoming debt free can offer help.

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